November 17, 2008
SRI Funds Post Losses, But Hold Their Own in Relative Performance
by Robert Kropp

While not immune from the battering endured by investors of all stripes, many SRI funds have
outperformed mainstream funds on a relative basis this year.

In the waning days of 2008 investors can be forgiven for turning their eyes away from the market
page of their newspapers as the carnage inflicted by the financial crisis, in which many funds have
lost up to 50% of their value, seems to continue unabated. Financial analysts expect the crisis to
continue to wreak havoc in the global economy for at least two more years.

In a
bear market, SRI funds often outperform mainstream benchmarks, a tendency that appears to be
relevant today. And funds that practice more conservative strategies such as value investing tend
to do better than those looking for growth stocks, which tend to outperform in bubble markets.

Relative performance measurement indicates the performance of a fund against a benchmark index
or peer funds. By considering relative performance, an investor can determine how a fund performs
over a given time period, as opposed to absolute performance, which measures actual returns. Not
surprisingly, in times of an economic downturn, such as this year, an investor can expect to find
even top performing funds on a relative basis to have losses in absolute returns.

Over the
last year, the Appleseed Fund, a midcap
value fund that manages $10 million in assets, has outperformed all other SRI funds in the domestic
equity category.

But when SocialFunds.com spoke with Adam Strauss, Appleseed's fund
manager, he was quick to point out that the fund's relatively strong showing extended beyond those
that screen according to SRI principles.

"According to the Wall Street Journal fund
performance ranking published on November 3, Appleseed ranks first among all midcap value funds,
both those that screen for SRI and those that do not," Strauss continued.

While other SRI
value funds exist—for example, Ariel
Mutual Funds have performed well over the past year—none have performed as well as Appleseed.

Asked how Appleseed has outperformed other domestic equity funds in such a challenging
year, Strauss answered, "As value investors, we keep a keen focus, and maintain a large margin of
safety. That has allowed us to outperform growth investing. We look at how sustainable a company is
before investing in it, and measure the downside risk."

As an example of Appleseed's SRI
mandate, Strauss cited Female Health, a
company that manufactures and sells the female condom in 108 countries. "By providing the female
condom to developing countries, Female Health has helped to cut both the pregnancy and HIV rates.
Its product has also allowed women in those countries to take charge of decisions affecting their
lives."

Todd Ahlsten of Parnassus
Investments takes a more expansive view of responsible investing. The fund manager for the Equity Income
Fund, one of four Parnassus funds that have outperformed more than 90% of domestic equity funds
in the last year, Ahlsten invests in growth stocks as well as value stocks.

"We invest in
companies that provide services relevant to people's lives," said Ahlsten. For example, health care
and information technology companies comprise nearly 40% of the Equity Income Fund's portfolio.

"We look for companies whose stocks produce higher margins," he continued. "And as
important as anything is the emphasis we put on management. The companies we invest in must be run
by good people."

Ahlsten believes that value stocks may be less prevalent than the current
market might suggest. "We find value oases in the market today," he said. "But the stocks of many
companies only seem cheap because of previous earnings that were unsustainable. We anticipate a
de-leveraging of the market, after which the S&P Index will stabilize at a lower rate than before
this year's crisis."

Similar to Appleseed, Parnassus maintains an SRI mandate in its
investments. Andrea Reichert, Research Analyst for Parnassus, explained how the fund applies its
mandate to the renewable energy sector.

"When solar energy was the poster child for the
renewable energy industry, we questioned the sustainability of its earnings and found question
marks on the demand side as well. But we are enthusiastic about the sector dynamics, as
demonstrated by our decision to invest in Ormat
Technologies, a geothermal company.

Reichert gave another example of the investment
choices made by Parnassus. "When we looked at Waste
Management, we saw a company with governance issues in its past. But we also saw a leader in
the recycling movement and a company that recovers and processes methane gas from its landfills
into an energy source for generating power."

Other high performers among the domestic
equity funds are two of the CSIF Equity Portfolio Funds offered by Calvert Funds.

International and global funds have been
especially hard-hit in the past year, as previously robust returns have been largely reversed.
Nevertheless, MMA Praxis Mutual Funds'
Praxis International funds and Portfolio
21 have managed to outperform roughly 75% of all peer mutual funds.

Balanced funds,
designed for investors looking for a mixture of current income and modest capital appreciation,
have performed relatively well in this bear market. Among balanced funds, Calvert's Conservative
Allocation funds and Legg Mason's Social
Awareness funds have performed best on a relative basis.

Even conservative fixed income
funds have taken a beating in 2008, and only Community Capital Management's CRA Qualified Investment
Fund managed to outperform more than 90% of its peer mutual funds. The CRA Fund and DWS Investments' DWS GNMA S Fund, also
a fixed-income fund, have even managed to achieve positive absolute performances in the last year.

As a new year and a new President draws near, what do fund managers foresee? "Over the
long term, the economy will be good," said Strauss of Appleseed, "Although I have to be pessimistic
about the economy in the short term. Horrible mismanagement has been allowed for too long,
irresponsible lending has gone unchecked, all kinds of negligence is evident everywhere. New
regulations will help prevent such abuses from reoccurring, but the horse has already left the
barn."

Strauss is more optimistic about the investment environment. "As the price of so
many stocks go down, it becomes possible for investors to buy stocks at sale prices," he said.